What Are Debt Relief Services?

When debt feels like it's piling up, finding a way forward is possible. Debt relief services could help you reduce your debts. They can work with your creditors on your behalf to negotiate your debts. Debt relief services can help with looming credit card debt, medical bills, and other unsecured debts. 

Working with a debt relief services company could make it easier to manage your finances – and help you sleep at night. Financial stability could help improve your emotional well-being and let you feel more in control.  

This guide will walk you through debt relief services and how they work. From there, you can explore your options and take a step toward gaining financial peace of mind.

What Are Debt Relief Services?

Technically, debt relief is anything that eases the burden of your debt. These services encompass a range of strategies, such as: 

• Debt settlement

• Debt management plans

• Debt consolidation

The goal is to provide a structured approach to dealing with debt, sometimes by negotiating with creditors to reduce the total amount owed. Other times, by creating a manageable payment plan. 

Debt relief services are typically sought by people who are overwhelmed by debt and can't keep up with their monthly payment obligations. Working with a reputable, trustworthy debt relief company could offer a viable alternative to bankruptcy.

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How Debt Relief Services Work

Debt relief services typically begin with a one-on-one consultation. Someone from the debt relief company will take a careful look at your financial situation. They'll pore over details like:

• The types of debt you owe

• Your income

• Your ability to make payments

Based on this assessment, they’ll recommend a customized debt relief strategy, such as:

1. Debt Settlement: Debt settlement is when your creditor agrees to accept less than the full amount you owe but consider the debt paid in full. The rest is forgiven. Your creditor may agree to a lump-sum payment or a series of payments. 

You can settle debts yourself or work with a professional debt settlement company. If you don’t have money to offer, you’ll need to set some aside each month until you are ready to negotiate. Some people choose to stop making payments on their debts while they save up money for settlement offers, because it can be hard to afford both. Missing payments is almost guaranteed to have a negative impact on your credit. Even so, settling debts could help you get back on your financial feet.

Debt settlement works for unsecured debts like credit cards and personal loans. It doesn’t work for secured debts like mortgages and car loans. Also, you generally can’t settle student loans.

1. Debt Management Plans (DMPs): DMPs are usually offered through a non-profit credit counseling agency. In a DMP, a counselor works with your creditors to design a payment plan. This plan lumps together your unsecured debt into a single monthly payment. These plans often include lowered interest rates and waived fees, making it easier to pay off your debt. DMPs usually require that you to close your credit card accounts and agree not to apply for new ones while you’re in the program. That limits your access to credit. 

Like debt settlement, DMPs work for unsecured debts like credit cards and personal loans.

1. Debt Consolidation: This is when you take out a new loan to pay off multiple existing debts. Not only does this streamline your payments, but the new loan might have a lower interest rate, which can save you on interest. It might also have a monthly payment that’s lower than the total of the monthly payments you were making on the debts you consolidated. A lower payment could make your debt more manageable.

If you’re in a debt settlement program or a DMP, the company or counselor you work with will manage communications with your creditors and oversee the execution of the plan. You’ll get a chance to review and approve any agreement that’s made with your creditors. 

If you get a consolidation loan, the lender may be willing to pay off your debts directly so that you don’t have to do so once you receive the loan funds.

The big-picture end goal? To reduce your overall debt burden, lower monthly payments, and ultimately help you be clear of debt.

So what does debt relief cost you? 

Like any other reputable debt-relief services company, Freedom Debt Relief earns money when clients pay us a fee for our negotiation services. No reputable debt-relief firm may charge fees at any other point, for any other reason, per regulations established by the Federal Trade Commission (FTC). The fee is typically a percentage of the total debt enrolled in the debt-settlement program and can vary depending on the client’s state of residence.

Once negotiations are complete and a creditor agrees to a lower settlement, you’re presented with the settlement agreement for approval. Assuming you approve the settlement, the payments will be processed to the creditor directly from your special-purpose designated account. 

Sometimes a settlement is made using one lump-sum payment. In other cases, settlements may be structured, which means the funds are paid in multiple payments over time. When the agreement is complete, the debt is considered resolved with the creditor, and the debt-resolution services on that debt are complete.

Learn more about debt relief and how it can help to reduce what you owe. 

Types of debt eligible for debt relief services

Usually, only unsecured debts are eligible for debt relief. “Unsecured” means the debt isn’t tied to an asset like a car or house. Examples of unsecured debts include:

• Credit-card balances

• Department store charge-card debts

• Personal loans

• Medical bills

• Some private student-loan debt

Debt settlement will not work with some kinds of debt, such as secured debt (a loan secured by a tangible asset). Examples of obligations that usually can’t be negotiated include: 

• Vehicle loans

• Mortgages or home loans

• Federal student loans

• Other government loans

• Utility bills

• IRS (overdue taxes)

• Lawsuits

There is small-business debt relief, but it isn’t as straightforward as other types of unsecured debt. For example, if you’re a small-business owner and use personal credit cards for business expenses, debt from those cards could be enrolled in a debt-relief program. However, a debt-relief company typically can’t help with other business debts, like bank loans or Small Business Administration (SBA) loans. 

Every option for eliminating debt has advantages and disadvantages. Specific pros and cons associated with debt-relief services are essential to keep in mind. 

Pros of Debt-Relief Services

Here are some of the main upsides associated with debt relief: 

1. Resolves all debt enrolled in the program: Settling debt doesn’t just move higher interest-rate balances to a lower rate, the way that debt consolidation can. Instead, debt relief works to lower the principal balances you owe, so you can put it behind you faster than you could with a loan.

2. Streamlines debts into one monthly payment: Debt-relief services can make paying debt less complicated, since you make a monthly deposit into a special-purpose designated account in an amount that fits your budget. This deposit could be less than the minimum payments on your credit cards or monthly payments on a debt-consolidation loan. The deposit is also usually much less than the monthly payment in a debt management plan offered by credit-counseling agencies.

3. Costs less than alternatives: While debt-relief services are not free, they typically cost less than a loan, since a loan charges interest on top of what you owe. In addition, negotiating debt generally costs less than what you will pay by making minimum credit-card payments.

4. Has better repayment terms than bankruptcy: Debt-relief programs usually provide better repayment terms than Chapter 13 bankruptcy filings. Plus, settling balances helps people get out of debt without leaving a permanent bankruptcy judgment on their record.

5. No conflict of interest with creditors: Unlike credit-counseling agencies that often accept “good faith” payments from credit-card lenders, debt-relief companies work only on the consumer’s behalf.

6. Encourages better money habits: The best debt-relief companies help clients learn to create and use a budget, as well as incorporate personal-finance best practices into their lives. Many people also benefit from the discipline required in making regular deposits into the special-purpose account that funds their debt settlements.

Cons of Debt-Relief Services

Here are a few reasons to think twice about debt relief:

1. Impact on credit reports and scores: The debt-relief process requires you to go “past due” on accounts (stop making payments), so that creditors will be willing to negotiate. That requirement can be uncomfortable, and it can negatively impact your credit reports and credit scores. A lower credit score could also make it harder later to get approval for other loans or lines of credit. 

2. Creditor or collection-agency calls: Because you’re falling past due, creditors may continue contacting you while you’re using debt-relief services. Freedom Debt Relief offers options and information to its clients on how to handle these phone calls; but such calls can still be troublesome to deal with. 

3. Potential legal action: Some creditors may threaten or take legal action for repayment, regardless of your attempts to negotiate a lower balance. A good debt-relief company will support its clients through this process. At Freedom Debt Relief, we offer an optional service with an outside law firm to represent clients, should legal issues arise.

Who Is Debt Relief Right For?

Whether you should use debt relief can depend on the details of your situation. Generally speaking, negotiating debt is not the right solution for someone who has less than $7,500 in unsecured debt. Credit counseling may be better in that situation instead.

Debt-relief services are best for people who are:

• Struggling with at least $7,500 in unsecured, high-interest, debt

• Unable to keep up with payments on these debts

• Suffering a hardship—divorce, the death of a spouse, job loss, or unexpected medical expenses—that makes it difficult to have extra income to put toward debts

• Looking for a solution that is affordable and will help them put their debt behind them—rather than just looking to consolidate their existing debt into a new type of debt (like a loan)

Debt relief usually isn’t suitable for someone focused on maintaining a high credit score while eliminating debts. During debt negotiations, you need to be comfortable with the idea that your credit score could go down before it goes up again. 

If you have a high credit score and want to protect that score more than you want to put debt behind you for good, a debt-consolidation loan may be an option. Learn more about when it is a good idea to get a debt-consolidation loan.

DIY vs. Hiring a Debt-Relief Company

Negotiating debts can be time-consuming and frustrating. You may not understand your rights concerning debt collections and may be intimidated by debt collectors or creditors who use underhanded tactics to pressure you into paying. That’s why many people turn to professional debt-relief companies, like Freedom Debt Relief, to provide this service.

Debt-relief services can save you the trouble of talking to creditors directly to try to work out a deal. However, you’ll pay a fee for these services, and your credit scores might take a hit. For those reasons, choosing the best company to settle your credit card and other debts requires careful consideration. 

We’d be happy to talk to you if you’re considering debt settlement. You can call a Freedom Debt Relief Certified Debt Consultant anytime at 800-230-1553. We also encourage you to look at other debt-relief service providers so that, if you choose to enroll in our program, you are fully confident you are making the right choice!

What to Look for in a Debt-Relief Services Company

If you’ve decided to hire a debt-relief company, it’s important to know what to look for to find legitimate and credible help. Unfortunately, not all such companies have the history and experience to get the best results for their clients.

1. Length of time in business: The value of debt relief lies in the quality and effectiveness of the negotiation. The better job the debt-relief company does in negotiating, the lower your settlement—and the higher your savings—will be. A debt-relief services company with a long history of negotiating debt means it  should have greater expertise and insight.

2. Open communication: The employees at the debt-relief company must be ready and able to answer any questions about how the process works, what you should expect, and what the fees will be. Beware of vague answers. Transparency into how the debt-settlement process works is critical. Debt-relief programs are a commitment that can take a few years to complete, so you want to know you are working with a supportive company that will be there for you when you have questions.

3. Happy clients. Search trusted review sites to learn what it’s like to be one of the company’s clients. But note that just because a website has long articles and appears to be objective doesn’t mean that it is objective. Look for words and phrases, such as “sponsored content”,“ad”, or other disclaimers, showing that the so-called reviews are paid advertisements. Also, beware of any debt-relief review websites that include many companies but don’t include Freedom Debt Relief. As the largest and arguably the most established debt-relief company in America, if we aren’t included in a review of top debt-settlement companies, that website isn’t thoroughly examining your options.

4. Trained debt counselors: The company’s Certified Debt Consultants should be experienced and trained in debt settlement.

5. Membership in industry organization: The American Association for Debt Resolution (ADDR) enforces a strict code of conduct for its members. Debt settlement companies can join the AADR only if they comply with the Federal Trade Commission regulations for the industry. For these reasons, AADR membership is one sign of a reputable company.

Questions to Ask Debt-Relief Companies

How a debt-relief company responds to your questions will help you assess whether it provides the level of integrity, experience, savings, and customer service you expect and deserve. To choose the debt-relief company that can best help you eliminate your credit card and other debt, make sure to ask these four questions:

• How much will the program cost each month?

• What are the program’s negotiation fees?

• How many creditors have you settled debts with?

• Where can I read client reviews from real clients?

If you ask these questions and get vague answers, ask yourself if this is a company you could feel comfortable working with for the next 2 to 4 years. Trust your instincts when evaluating a debt-negotiation plan. If your “gut feeling” about a debt-relief company is negative, the chances are it’s not the best fit for you.

Remember, debt relief is not the best debt solution for everyone. It requires you to have a solid commitment to getting out of debt, learning how to budget and live within your means, and being comfortable with having your credit score impacted. But for many, it can help them resolve their debt for good and get on solid financial ground.

Is your debt-relief company legit? Find out how to identify a debt-relief scam.

Take the Next Step

If you think debt-relief services might work for you, call us at 800-230-1553. Our Certified Debt Consultants are ready to answer your questions. Or complete our online form right now to see if you qualify. You’ll also get a free estimate of how much the program could save you and how quickly it could help you put your debt behind you.